Despite lingering issues with corruption, public procurement oversight, and energy market liberalization, Bulgaria is still expected to join the eurozone next year. This is according to a recent forecast by Standard & Poor’s Global Ratings, obtained by Bulgarian media Dnevnik. The agency’s analysts say these governance shortcomings will not derail the country’s accession to the single currency, as current European Commission priorities appear to lean heavily toward economic criteria rather than structural reforms in governance.

In its report, S&P notes that the 2024 convergence assessments focused mainly on inflation targets and precedent conditions from past candidate countries. This, the agency argues, indicates that Brussels is primarily concerned with macroeconomic indicators over administrative or regulatory shortcomings. Furthermore, EU member states such as Germany and the Netherlands - often considered stricter on matters of institutional reform - have not publicly opposed Bulgaria’s planned entry in 2026. S&P sees this silence as further proof that governance standards are viewed as peripheral rather than essential by decision-makers.

Earlier this year, Bulgaria missed out on €653 million in grants from the Recovery and Resilience Plan due to delays in adopting key reforms in corruption control, procurement management, and energy market liberalization. Still, the analysts believe that the dominant political will behind Bulgaria’s euro adoption will weigh more heavily in the European Commission’s upcoming assessment than the ongoing domestic political turbulence since 2020.

The analysis was circulated just days after National Assembly Speaker Natalia Kiselova returned President Rumen Radev’s proposal for a referendum on whether the country should adopt the euro in 2026. According to EU procedure, once a candidate receives unanimous approval from eurozone members, the transition happens automatically. Whether Bulgaria meets all criteria will be confirmed in the convergence reports, expected on June 4.

Standard & Poor’s affirms that Bulgaria now meets the inflation benchmark for euro adoption. The metric is determined by comparing Bulgaria’s inflation with that of the three best-performing EU member states in this category - currently Italy, Ireland, and Finland - plus a tolerance margin of 1.5 percentage points. S&P projects Bulgarian inflation will settle around 2% by year’s end, in line with the convergence threshold.

Other fiscal indicators also appear to be within acceptable limits. The country’s budget deficit is forecast to stay at or below 3% of GDP through at least 2027. Public debt remains under 30% of GDP, and long-term interest rates as well as the fixed exchange rate of the lev continue to comply with Maastricht criteria.

Still, the report outlines the potential risks in the final stretch. One major concern is whether any eurozone country will break silence and object to Bulgaria’s entry, possibly citing insufficient progress on corruption or judicial reforms. As of now, no such protests or declarations are evident. Domestically, there has been political agitation against the euro, with some opponents encouraging Slovakian Prime Minister Robert Fico to intervene. But so far, there is no indication that Slovakia is considering such a move - especially given its own recent fall in Transparency International’s Corruption Perceptions Index, dropping 12 places to rank 59th out of 180 countries.

Another variable is whether any unfavorable changes - however minor - in inflation or the budget deficit emerge before the official assessment. Even small data shifts could potentially raise red flags about Bulgaria’s compliance.

S&P also revisits its previous analysis from April, highlighting the fragility of the current government. On April 22, the agency noted a high probability that one of the coalition partners could exit, destabilizing the administration within the year. This followed criticism from Ahmed Dogan’s Movement for Rights and Freedoms (DPS), which announced on April 15 that it could no longer support the government’s policies due to inadequate anti-corruption efforts. Opposition groups such as “Revival” and MECH even backed a failed no-confidence vote, which saw 72 votes in favor and 130 against.

Despite the tensions, recent assessments - including one by the KBC banking group - suggest the current Bulgarian government is likely to withstand both internal and external pressure. Having already survived two no-confidence votes in its first 100 days, the cabinet is seen as capable of steering the country through the final stages of eurozone accession.

Source: Dnevnik